College is probably not the best place to use your dollars if your goal is societal improvement. By the time you get to college, your life track, income, etc. is pretty much set within a narrow range of outcomes. It’s probably better to spend your money improving early childhood and elementary schools.

If you assume that college is still quite important for other reasons, don’t fund Johns Hopkins (or Harvard or Yale or wherever). Your return-on-investment there is pretty bad, since these institutions coast on reputation. Why not give to community colleges instead — which are always hurting for cash and have lower attrition rates than four-year colleges? Additionally, the students that attend Hopkins or Harvard or Yale already have lots of breaks in their favor? Why not give a break to the students at the margins of success who need it more?

Additionally, the highly selective undergraduate institution relies on cartelization to keep its prestige. Harvard, with its $34B endowment, could reasonably educate a lot more people than it does now. Instead, it limits who can attend with unnecessary precision. Can’t dilute the brand! If that’s the case, why keep giving so much to an institution that will do so little with your money?

So, if this is so bad, why do we do it?

Sentimentality (or availability bias): Michael Bloomberg got a lot out of Hopkins; he wants to show his appreciation. He loves the place and has fond memories. As such, he wants to give money.

Our tax code: By giving the money away, Bloomberg gets a legacy that he doesn’t have to lose upon death (estate tax). Additionally, he gets to deduct those donations from his massive income.

Prestige: Rich people love giving away money when they can slap their name on it. (Not so much when they can’t, see, e.g., Donald Trump.) Additionally, we shower people with attention for their donations.

All these factors lead to a quite inefficient distribution of wealth to higher education. Hopkins has a $3B endowment; it educates 5,000 undergrads and 2,000 grad students a year. The University of Maryland-College Park has a $792M endowment; it educates 26,000 undergrads and 10,000 grad students a year. I can’t find statistics, but I would hazard that the parental income of a Hopkins student is higher than the parental income of a Maryland student. I would also hazard that the percentage difference in income of a student who was waitlisted at the university and got in vs. a student who did not is bigger at Maryland than at Hopkins.

Which is all a long way of saying that donations are vastly inefficient ways to redistribute wealth, and we should just tax people a lot more. I’m not saying that central planning is a better way to distribute wealth; plenty of this money could just be block-granted to states/municipalities with some strings (i.e. required income reporting, tracking students after graduation, etc.).

Philanthropy may sound good, but a system with a lot of big-dollar philanthropy probably isn’t equitably distributing wealth in the first place.

President Obama has released his tax returns–that ever-strange feature of American politics. Yet, the tax return gives us an interesting view into one bit of our tax law that needs substantial reform: the charitable donation. As you’ll note from my shoddy circling, President Obama donated $5,000 to Sidwell Friends School. If that name sounds familiar, it’s because the President’s daughters attend that school.

Furthermore, to what extent can this really be considered charitable giving? Presumably, this is much closer to a quid pro quo relationship — the school, I imagine, strongly encourages parents to donate additional money to the school. Might those parents donate expecting special or different teacher? Might the school have incentives for treating the students of donors differently than those who merely pay tuition?

The charitable deduction is not necessarily a way of funding charities; it is definitely a way to subsidize (mostly) the rich to make decisions about investments they wish to make. After all, only the rich benefit substantially from the itemized deduction; those of us taking the standard deduction (about 70% of taxpayers) don’t deduct much for our charitable donations. Should we really allow people to deduct for donating to, say, the opera (an organization that overwhelmingly benefits the rich)? The Center for American Progress or the Federalist Society (essentially political advocacy organizations)? Churches and other religious organizations? A private dinner club?

Again, I’m not saying that giving to charity is bad; I myself donate to charities. But, we do need to think more about why we subsidize charities and the outcomes that those subsidies create. Are we OK with subsidizing the ability of the rich to give money to organizations they like? Are the bad outcomes (such as non-profit bloat, fraudulent organizations, tax shelters, and charities that benefit the rich and privileged, etc.) worth the good ones (such as civic participation, communitarian values, market-driven donations, and charities that benefit the poor and underprivileged)? Like I said, I don’t know the answer to these questions, but it’s important that we ask them rather than act as if the charitable deduction must be a universal positive.